CESAR v. RUBIE'S COSTUME CO.

January 20, 2004.

JEAN-CLAUDE CESAR, Plaintiff,
v.
RUBIE'S COSTUME CO., INC., Defendant

The opinion of the court was delivered by: NICHOLAS G. GARAUFIS, District Judge

Memorandum and Order

In this trademark infringement claim brought by Jean-Claude Cesar
("plaintiff) against Rubie's Costume Co., Inc. ("defendant"), the court
now considers the plaintiffs motion to enter judgment pursuant to a Fed.
R. Civ. P. 68 offer of judgment that was allegedly accepted by the
defendant. The defendant opposes this motion on the ground that the Rule
68 offer included a mistake and that the defendant revoked the offer of
judgment prior to the plaintiff's acceptance. The Second Circuit has not
yet ruled on whether a defendant can revoke a Rule 68 offer of judgment
when the offer contains a material mistake. For the reasons discussed
below, I conclude that the defendant can revoke the instant Rule 68 offer
and, as a result, the plaintiff's motion is denied.

I. Background

In this action, the plaintiff alleges that the defendant has infringed
and continues to infringe on the plaintiff's copyrighted animal nose mask
designs by manufacturing and selling animal nose mask designs that are
identical to or substantially similar to the plaintiff's
Page 2
copyrighted designs. Complaint at ¶ 13. At this time, the plaintiff
has not joined the defendant's customers; however, in discussions with
the defendant's counsel, the plaintiff appears to have orally alleged
that the defendant's customers are also liable for similar and related
copyright infringement. See Defendant's September 25, 2003 Letter ("Def.
9/25 Let.").

The instant dispute arose as the parties were completing discovery
and, through their attorneys, discussing settlement, Defendant's October
1, 2003 Letter ("Def. 10/1 Let.") at 2. The defendant initiated a
settlement discussion by telephone and both parties provided their
calculations for potential and likely damage awards. Id. All potential
settlement amounts were discussed in terms of the total liability for
Rubie's and its customers collectively. Id. During this conversation, the
parties' proposed settlement figures were far apart. Id. At the conclusion
of the conversation, "Rubie's attorney indicated . . . that it appeared
that an offer of settlement of twice the amount offered by Rubie's in the
conversation would still result in Cesar's rejection and demanding more.
Cesar's attorney responded that that appeared to be true." Id.

As a consequence, on September 25, 2003 the defendant served a
Fed.R.Civ.P. 68 Offer of Judgment ("Offer") on the plaintiff which
offered "substantially twice the amount" that the defendant had mentioned
in the original settlement conversation. Id. However, the language of the
Offer only purported to release the defendant and not its customers. See
September 25, 2003 Offer of Judgment ("Offer"). Later on September 25,
the plaintiff's attorney telephoned defendant's attorney and stated that
the plaintiff would not consider a global settlement for the amount
proposed in the Offer but that the plaintiff was considering accepting the
Offer and continuing to pursue its claims against the defendant's
customers. Id. At that time, the plaintiff's counsel stated that, after
conducting legal research, he had concluded that the Offer
Page 3
was irrevocable. Id. Defendant's attorney then researched the issue and,
later that same day, sent a letter to the plaintiff stating "[o]ur Offer
of Judgment, not having been accepted to date, is being withdrawn,
revoked, and retracted because of an obvious mistake and/or mutual
error." Def. 9/25 Let. This letter recounted the earlier settlement
conversation between the parties' counsel and argued that the language in
the Offer stating that the settlement would release only the defendant
and not its customers was a mistake. Id. The same letter stated that a
new offer of judgment would be provided. Id.

Later on September 25, 2003, the plaintiff, in a written submission to
the court, filed a document titled "Plaintiff's Acceptance of Defendant's
Offer of Judgment" where it stated that, pursuant to Rule 68, the
plaintiff accepted the Offer.

In its lengthy October 7, 2003 letter to the court in which the
plaintiff argued that Rule 68 requires the court to enter the Offer in
judgment, the plaintiff has not contested any of these facts. Because the
facts are not contested, I declined to hear oral testimony on this issue.
Because of this lack of disagreement as to the underlying facts, I credit
the defendant's rendition of the relevant events, as described above.

II. Legal Discussion

The plaintiff argues that the Offer must be entered in judgment
pursuant to Fed.R.Civ.P. 68 and the defendant argues that contract and
equity principles counsel against entering the Offer in judgment. Federal
Rule of Civil Procedure 68 states that

At any time more than 10 days before the trial
begins, a party defending against a claim may serve
upon the adverse party an offer to allow judgment to
be taken against the defending party for the money or
property or to the effect specified in the offer, with
costs then accrued. If within 10 days after the
service of the offer
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the adverse party serves written notice that the offer
is accepted, either party may then file the offer and
notice of acceptance together with proof of service
thereof and thereupon the clerk shall enter judgment.

Neither the Second Circuit nor any district court within the Second
Circuit has determined if and to what extent Rule 68 offers are
revocable. Other courts are divided on the issue of whether Rule 68
offers are revocable. In a variety of contexts, the Seventh, Eighth, and
D.C. Circuits have all stated that Rule 68 offers are irrevocable during
the ten-day period. See Webb v. James, 147 F.3d 617, 620-21 (7th Cir.
1998) (holding that Rule 68 prohibits defendant from revoking an offer
even after a dispute has arisen as to the meaning of the offer but that
Rule 60 permits a court to void a validly accepted Rule 68 offer in some
circumstances); Perkins v. U.S. West Communications, 138 F.3d 336, 339
(8th Cir. 1998) ("We conclude that the plain language of Rule 68 mandates
that an offer of judgment remain valid and open for acceptance for the
full ten-day period outlined in the Rule despite an intervening grant of
summary judgment by the district court."); Richardson v. Nat'l R.R.
Passenger Corp., 49 F.3d 760, 764-65 (D.C. Cir. 1995) (holding that Rule
68 offers are "simply not revocable during the 10-day period but that a
judgment entered on a properly accepted Rule 68 offer can be modified or
withdrawn under Fed.R.Civ.P. 60(b) "if the offer is induced by actual
misconduct on the part of the plaintiff); see also Pope, et al. v. Lil
Abner's Corp., 92 F. Supp.2d 1327 (S.D. Fla. 2000) (holding that a
counteroffer does not terminate the power of a Rule 68 offeree to accept
the Rule 68 offer within the prescribed ten day period). However, the
Fourth Circuit and at least one district court have held that, in limited
circumstances, Rule 68 offers can be revoked when there is good cause.
Colonial Penn Ins. Co. v. Coil, 887 F.2d 1236, 1240 (4th Cir. 1989)
(permitting revocation of
Page 5
offer of judgment induced by fraud); Fisher v. Stolaruk Corp., 110
F.R.D, 74, 76 (E.D. Mich. 1986). In Fisher, the court held that Rule 68
offers should be governed by background contract principles and that such
offers are revocable where a mistake is made. Fisher, 110 F.R.D. at 76;
see also Goodheart Clothing Co. v. Laura Goodman Enter., Inc.,
962 F.2d 268, 272 (2d Cir. 1992) (Rule 68 offers of judgment "are
construed according to ordinary contract principles"); Colondres v.
Scoppetta, ___ F. Supp.2d ___, 2003 WL 22708655 (E.D.N.Y.) (same). The
Fisher court announced a four-part test for determining when a party is
entitled to rescission: (1) the mistake must be sufficiently
consequential that enforcement of the contract would be unconscionable;
(2) the mistake must be material; (3) the mistake must have not been
caused by negligent conduct; and (4) it must be possible to place the
plaintiff in the same position it was in ex ante, Id. at 76.

For a variety of reasons, I agree with the court in Fisher and hold
that Rule 68 offers are revocable in those cases where contract law would
permit the offer to be revoked.

First, the text of Rule 68 does not explicitly state whether a Rule 68
offer can be revoked. See Moore's Federal Practice § 68.04[4] (2002)
(noting "[t]he silence of Rule 68 on the issue of revocability); but see
e.g., Webb, 147 F.3d at 621 (holding that the Rule 68 language which
states that the clerk "shall enter judgment" upon the filing of an
accepted offer "removes discretion from the clerk or the trial court as
to whether to enter judgment upon the filing of the accepted offer").
While the language stating that the "clerk shall enter judgment" suggests
that the clerk's obligation is merely ministerial, there is nothing in
this language which suggests that the court's role is ministerial, In
some contexts, "the district court has inherent supervisory power to
revoke an offer of settlement made pursuant to Rule 68." Colonial Penn
Ins. Co., 887 F.2d at 1240. If
Page 6
the Rule were intended to deprive district courts of these essential and
historic supervisory powers, its language would be far more explicit than
it is. Further, the Federal Rules of Civil Procedure should not be
applied in such a way as to cause gross inequities. See id. at 1240
(noting that the "equities" favored revocation of a Rule 68 offer where
the plaintiff had engaged in fraud and stating ...

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